05 February 2025

What to expect in Washington (February 5)

With plans for the House Budget Committee to begin marking up an FY2025 budget resolution this week having slipped and Senate Republicans saying since last week that they can be ready with their own budget and tax plans as soon as they are required, there is increasing speculation about a Senate-first approach to get the reconciliation process going. The thinking until now has been the House would need to go first to see what Republicans there can pass with a narrow majority. The main difference between the two chambers is that the Senate wants two reconciliation bills, starting with border issues, to notch a legislative victory on a campaign issue, then deal with tax in a second bill. House leaders want an all-in-one bill to bring all members on board, as they will essentially need all GOP votes. (The Freedom Caucus group of House conservatives backs the two-bill approach, and reports suggest they could work with Senate Republicans on that strategy.)

Senate Republicans will be in Florida for a retreat this weekend. Politico reported that members are going to Mar-a-Lago for dinner Friday and reconciliation might be a topic of discussion. Second-ranking Senate Republican John Barrasso (R-WY) said, "We're going to meet with President Trump Friday night. We'll discuss that, the issues of how successful the Republicans have been in the House, which it looks like they're right [now] not able to move at the level we'd like them to move, and to see if he'd like us to move forward. We do have a bill ready to go here." Last week, Senate Majority Leader John Thune (R-SD) and Senate Finance Committee Chairman Mike Crapo (R-ID) suggested the Senate plans to be ready with a budget, and Senate Budget Chairman Lindsey Graham (R-SC) is ready to mark up if the House doesn't act.

An FY2025 budget resolution is the first step toward unlocking the budget reconciliation process that Republicans want to use to extend Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025, with only Republican votes in the House and Senate. The primary dispute among House Republican members is the amount of spending cuts that should accompany a tax bill.

Punchbowl News reported February 5: "Speaker Mike Johnson and the House Republican committee chairs initially proposed between $500 billion to $700 billion in spending cuts as part of a massive reconciliation package. Yet conservative GOP hardliners rejected that, saying they wanted more. They're seeking as much as $2 trillion to $5 trillion in cuts." The report cited Majority Leader Steve Scalise (R-LA) as saying a Budget Committee markup is now eyed for next week and other committees are being directed to propose deeper potential spending cuts under their jurisdictions.

Tax — Tax and other regulations are set to again be reviewed by the Office of Information and Regulatory Affairs (OIRA), within the Office of Management and Budget (OMB), under an executive order signed by the President on January 31. Regulations were reviewed by OIRA during the first Trump administration, and the OIRA Website provided some advance notice of regulations' release, but the practice was discontinued during the Biden administration. The Order also requires that whenever an agency promulgates a new rule, regulation, or guidance, it must identify at least 10 existing rules, regulations, or documents to be repealed.

Tax Notes reported February 4, "The inclusion of OIRA — part of the OMB — in the tax regulatory review process has both its supporters and detractors in the tax policy world. Critics claim it dismisses the expertise of Treasury and IRS professionals and creates more biased outcomes that exclude key metrics, while supporters argue that the process fosters greater transparency and compels Treasury and the IRS to disclose where they have regulatory discretion."

The Bloomberg Daily Tax Report said, "Supporters said the review in Trump's first administration added transparency and accountability for the IRS and Treasury. It also provided lobbyists another avenue to lobby on guidance, though considerable changes to the regulations during the process were rare when it was first implemented … Critics of the extra layer say it slowed the process and the framework was flawed."

Tariffs — The 25% tariffs on Canadian imports (10% tariffs for energy resources) and 25% tariffs on Mexican imports that were to be effective February 4 under Executive Orders (EOs) signed by President Trump on Saturday have been pushed off for 30 days as both nations negotiate with the Administration. The Administration imposed the tariffs citing "the tide of illicit drugs" coming into the US from these countries. An EY Tax Alert, "United States issues Executive Orders imposing additional tariffs on Canada, Mexico and China," is available here.

An analysis in the February 4 Wall Street Journal suggested that the past consensus "that the U.S. prospers by fostering cooperation and integration with allies and neighbors is gone" and trade tools are now being used to try to achieve "the priorities of the day." President Trump's trade policy has evolved from the first-term focus of trying to improve US economic competitiveness with more adversarial nations to targeting allies. "He has since added two goals. He has said the revenue from tariffs can pay for lower income taxes, which implies he intends them to be permanently higher," the analysis said. "And Trump is treating tariffs as an all-purpose tool to achieve a range of economic, political and strategic goals."

Today (Wednesday, February 5) is an EY Webcast, "Tariffs are here: what companies need to do now."

The Senate Finance Committee nomination hearing to consider Jamieson Greer to be United States Trade Representative (USTR) is on Thursday, February 6, at 10 a.m. It will be preceded by Open Executive Session to Organize for the 119th Congress.

Global tax — In reporting on a letter from some Ways & Means Committee Republicans to President Trump denouncing the Biden administration's approach to the OECD-led global tax agreement and advocating for their retaliatory measures for countries that unfairly tax US companies, Morning Tax today reported: "Something that tax experts have been thinking about is what a detente between the U.S. and other countries might look like on Pillar Two. Perhaps the most straightforward way would be to include the U.S. in a safe harbor included in the global tax deal, which would at least put a hold on other countries using the UTPR and other measures against American companies. But that might be more of a temporary fix … "

Bill intros — Bill introductions of interest include:

February 4

  • S. 369, to deny certain green energy tax benefits to companies associated with foreign adversaries, Senator Rick Scott (R-FL)
  • S. 370, to establish tax credits to encourage individual and corporate taxpayers to contribute to scholarships for students through eligible scholarship-granting organizations and eligible workforce training organizations, Senators Ted Cruz (R-TX) and James Lankford (R-OK)

February 5

  • H.R. 917, to make permanent the exclusion from gross income of discharge of qualified principal residence indebtedness, Rep. Julia Brownley (D-CA)
  • H.R. 918, to make permanent the deduction for mortgage insurance premiums, Rep. Brownley
  • H.R. 919, to codify IRS guidance relating to treatment of certain services and items for chronic conditions as meeting the preventive care deductible safe harbor for purposes of high deductible health plans in connection with health savings accounts, Rep. Vern Buchanan (R-FL)
  • H.R. 939, to allow K-12 education expenses to be paid from a 529 account, Rep. Kevin Hern (R-OK)
  • H.R. 955, to reform health tax provisions to "create a tax-advantaged account that enables millions of Americans with most types of insurance coverage to save for health care costs through both individual and employer contributions," Rep. Blake Moore (R-UT)

Senator Sheldon Whitehouse (D-RI) and Rep. Lloyd Doggett (D-TX) are reportedly set to re-introduce The No Tax Breaks for Outsourcing Act, which in prior versions included provisions to end the preferential tax rate for offshore profits by eliminating the deductions for global intangible low-tax income (GILTI) and foreign-derived intangible income (FDII) and apply GILTI on a per-country basis.

Congress — A Senate procedural vote on Russell Vought's nomination to be OMB Director will be held today (Wednesday, February 5) after the 11:30 a.m. vote on confirmation of Eric Scott Turner to be Secretary of Housing and Urban Development.

The Senate Finance Committee approved Robert F. Kennedy, Jr.'s nomination for HHS Secretary on Tuesday, February 4. The vote was a party-line 14-13.

Thursday, February 6 is a Bloomberg Tax event, "Tax Policy Perspectives in 2025," featuring Lisa Wolski, Managing Director, Washington Council Ernst & Young, and others.

Friday, February 7 at 12 p.m. is the EY Webcast, "Tax in a time of transition: legislative, economic, regulatory and IRS developments."

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Contact Information

For additional information concerning this Alert, please contact:

Washington Council Ernst & Young

Document ID: 2025-0400